The 13 Commandments of Savvy Consumers

Last week I wrote about the Consumer Action Handbook. This freely-available guide from the U.S. government is packed with useful information. I was leafing through the book again this morning before I put it away, and I noticed that the good stuff starts on page one with a list of thirteen quick consumer tips.

I've transcribed these tips below, quoting verbatim from various sections of the book (which is in the public domain), as well as adding my own experiences and advice.

    1. A deal that sounds too good to be true usually is. Offers that often fall into this category are promises to fix your credit problems, low-interest credit cards, deals that let you skip credit card payments, business/job opportunities, risk-free investments, and free travel.
    2. Extended warranties or service contracts are rarely worth what you pay for them. This has been documented repeatedly from many sources, including Consumer Reports, yet people still pay for them. They're not always a bad deal (I always take them out for laptop computers), but most of the time, you're better off self-insuring. Instead of paying for service contracts, put the money you would have spent into a separate savings account. When something goes wrong, pay for the repairs out of this fund. Here's how one Get Rich Slowly reader does it.
    3. Say no to credit insurance offers. Often offered with credit cards, car loans, and home mortgages, it is almost always better to purchase regular property, life, or disability insurance.
    4. There is no universal three-day cooling-off period. Don't be misled into thinking that you have an automatic three days to cancel a purchase. Only a few types of contracts give you a right to cancel. For example, when you buy something at a store and later change your mind, your ability to return the merchandise depends upon store policy. If you buy an item in your home, you might have three days to cancel.
    5. Think twice before sharing personal information. Guard your Social Security number and credit card information. Learn how to prevent identity theft through deterrence, detection, and defense. (Just yesterday my doctor's office asked for my Social Security number. Maybe I shouldn't have done so.)
    6. Beware of payday and tax refund loans. Avoid the payday loan trap. If you are short of cash, avoid both of these loans by asking for more time to pay a bill or seeking a traditional loan. Even a cash advance on your credit card may cost less.
    7. Not all plastic cards offer the same protections. Understand how your credit and debit cards work. When you sign up for an account, read the fine print. Your liability for the unauthorized use of a gift card or debit card may be much higher than the $50 maximum on your credit card.
    8. Real estate agents represent the seller, not the buyer. When buying, consider hiring an agent or lawyer who represents you.
    9. Home improvement and auto repairs are the subject of frequent complaints. Don't just go with the first company you speak with. Get multiple estimates. Ask friends and family for recommendations. From my own experience, I'd rather pay more for a company that I know does quality work instead of gamble on a cheap unknown.
    10. Think twice before you rent-to-own. Interest rates on rent-to-own purchases can be very high. If you miss a payment, you could end up with nothing. Consider other options such as buying second-hand at a thrift shop or through ads in your local newspaper.
    11. Don't buy under stress. Research suggests senior citizens, people in crisis (e.g., coping with a death or debt), college students, small business owners, minorities, and immigrants are especially at risk of being victimized. Avoid making big-ticket purchases during times of duress. This point cannot be emphasized enough. Salespeople will often attempt to create artificial stress because they know it makes you more likely to buy. That guy who knocks on your door offering to sell you the last frozen chicken in his truck at a discount? He's creating artificial pressure to get you to buy.
    12. Be cautious of Buy Here, Pay Here lots. If you decide to buy a car from a used car lot, be sure to read all of the papers before you sign. Don't sign contracts that allow the dealership to change the finance rate after you leave the lot.
    13. Work-at-home ads usually don't pay off. Be especially wary of ads that promise huge annual salaries; they often require expensive upfront fees with no guarantee. You risk losing your money and wasting a lot of time and energy.

Some of these probably seem obvious — others less so. It's all good advice, though. When I look at the list, I recognize several of these “commandments” that I've violated, particularly buying under stress. I've finally learned to just say “no” to anyone who wants me to make a decision now (especially if it's a transaction that I did not initiate), but it hasn't always been this way.

I'd add a few other “commandments” to this list. I've written before about seven essential skills to protect yourself from scammers, including:

  • Seek recommendations from people you trust. Referrals increase the odds of finding a quality professional. There's rarely a need to flip blindly through the yellow pages (or google) to find a mortgage broker or a roofing contractor. Ask your friends, your family, your co-workers.
  • Read everything you sign. This is vital. Read all the policy changes that you get in the mail from banks, insurance agents, and credit card companies. At the very least, read the documents on your major purchases, especially cars and homes.
  • Don't invest in things you do not understand. If you don't understand the mortgage your broker offers, don't take it. If you don't understand buying stocks on margin, don't do it. If you don't understand that awesome new investment opportunity that your friend keeps pimping, then don't buy into it.

Can you think of other valuable consumer skills that should be added to this list?

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Bev
Bev
12 years ago

Don’t automatically accept it when your health or dental insurance rejects a claim that you submit. Question and re-question them, ask to speak to their supervisor if you’re not satisfied with their answer

michelle
michelle
12 years ago

I know you all like to rag on extended warranties… But sometimes they are worth it! I bought a refurbished Xbox 360 with an extended warranty because my first one gave out and I had suspicions this one would do the same… The Xbox died 3 times, was replaced twice, and when they couldn’t fix it, they sent me a check (albeit not enough for a new one)… but I would have been out even more money if I hadn’t gotten that warranty…

Adam
Adam
12 years ago

I find it ironic that an advertisement stating “I’m rich, you’re not. I cracked the code to making money. See how I make $3 Million per year and how you can too…” appeared.

Joe Ranft
Joe Ranft
12 years ago

I’d also add that you should wait one day to make any purchase over $100, or making any investment for the long term, so you can live with the decision and see how it feels before you actually pull the trigger.

JenK
JenK
12 years ago

There is no universal three-day cooling-off period. …and if your state has mandated a 3-day cooling-off period for a particular sort of contract? There’s a reason for that, and it’s not that they’re a really nice company that only has your best interests at heart. Real estate agents represent the seller, not the buyer. I’d say that if you don’t have an agreement with an agent, the agent isn’t working for you. I’ve known sellers who’d moved to Washington from other states and are floored to discover that the agent calling for the buyer is working for the buyer —… Read more »

Jason B
Jason B
12 years ago

Something I’ve been telling myself lately is “Only buy things when the need arises and triggers you to go out and start researching things.” So often, a deal will “come up” or “be offered to me” and even if they list off a dozen reasons why it’s a “good idea”, if it wasn’t something I was actively seeking, I try to remember that I wasn’t actually looking for it in the first place.

Ponderer
Ponderer
12 years ago

(The following is specific to to home electronics) When you do buy a big ticket item (large screen TV, laptop, etc), give yourself about a month to study the sale cycle. Use deal websites (there are tons of them), ebay, craigslist to study prices. Buy your product just before it hits rock bottom. Don’t worry if the price falls soon after. Go back to the store and ask for a price match. Of course, you should familiarise yourself with the store policies on price match (Bestbuy, Circuitcity, Amazon.com, Office Depot all honor the least price in a 30-day period). Often,… Read more »

Matt
Matt
12 years ago

Regarding #7 – consider opening a paypal account. Use a strong password and use the extra security they offer. Tie it to your checking or ING account. Then, use their one-time use credit card numbers when you make purchases online or over the phone. This is particularly nice if you don’t know much about the online merchant. Or if you want information from a site that offers a yearly or monthly subscription, but the monthly subscription auto-renews – you don’t have to remember to cancel, since the credit card number will be invalid when they try to charge you for… Read more »

Tony
Tony
12 years ago

Here’s something I learned in a home buying class.

Not all BAC (Buyer Agency Commissions)are 3%. Cross off the three percent figure and go by what the houses BAC is actually listed at otherwise you’ll be the one paying your realtor that extra amount to get to 3% if the BAC is lower.

At least I think this is what was said…

icup
icup
12 years ago

Do average people really buy homes without contracting a buyer’s agent? That seems pretty stupid to me, since it usually only costs you if you complete the transaction, and even then its usually not that much. “And yes, even if you have a buyer’s agreement with a buyer’s agent or broker, the fact that the commission is usually based on the selling price may subconsciously or consciously sway the buyer’s agent.” While that is true, I think the most successful buyer’s agents are successful because they know that getting a buyer into a 175K house rather than a 200K is… Read more »

J.D.
J.D.
12 years ago

Adam wrote: I find it ironic that an advertisement stating “I’m rich, you’re not. I cracked the code to making money. See how I make $3 Million per year and how you can too…” appeared.

I know. It makes me want to cry. I’ve blocked that ad, but it’ll take a few hours for that to take effect. The scammy ads have been thick around here lately. I’m trying to block them all, but it’s hard!

Carrie
Carrie
12 years ago

#2. I always use my past experience to decide whether to purchase an extended warranty. In my experience, computers often have problems 1-3 years down the road AND I’m still using them for that long. That’s why I always buy extended warranties for computers, but little else.

Lifeguard
Lifeguard
12 years ago

Regarding the three-day cooling-off period…

What do you mean when you say “If you buy an item in your home, you might have three days to cancel”?

Aryn
Aryn
12 years ago

There’s a computer expert on the radio here who says the only time he buys the extended warranty is laptops, because if the pixels on the screen start to go, the replacement cost is almost the cost of the computer. And pixels die a lot.

Anne Keckler
Anne Keckler
12 years ago

Guard your Social Security number and credit card information I actually had a dentist refuse to treat my daughter because I refused to give them her SSN. They insisted they needed it as a unique identifier, and I repeatedly pointed out to them why this was not true. I found another dentist, but I’m finding that many businesses these days are routinely asking for a SSN. I absolutely refuse to give it to anyone except the IRS and my bank (or other lending institution), and an employer. Nobody else has a legitimate need for it. Real estate agents represent the… Read more »

PJ
PJ
12 years ago

We never buy an extended warranty outright. However, we have found that a particular national chain sends solicitations for extended warranties at regular intervals years after you’ve purchased an appliance from them. When we have an appliance that is still in working order (but nearing that point where it will need a repair/replacement) we take out the extended warranty for a year. We’ve had several over-5-yr-old appliances completely serviced and repaired for the cost of the $50; and in another case, have received a $250 allowance towards the purchase of a new appliance because the replacement parts were no longer… Read more »

George
George
12 years ago

Although generally I agree that you should decline extended warranties, for some products I would suggest researching the historical repair/failure rates to help decide if the extended warranty would be ummm, warranted 🙂 For example, many Mac users recommend getting AppleCare coverage on the Mac laptops, which usually are pricey to get fixed if anything breaks. The AppleCare fee would pay for itself even after one incident. But on a desktop system or may an iPod, the extended warranty might not be so cost-effective. Not to be an Apple plug, but one other good thing about AppleCare vs. many extended… Read more »

Sara
Sara
12 years ago

The more it costs, the more research you need to do. And I’m not surprised that home repairs/contracting has large numbers of complaints. Watch Holmes on Homes just once and you’ll be scared off contractors forever.

Erin
Erin
12 years ago

#2 on extended warranties — I’m doing something similar with pet insurance: I looked into it when I first got my dog, but it seemed expensive and there were lots of exemptions. So I opened a separate ING account and do an automatic deposit of that amount every month. Now the dog has quite a nice nest egg, and if he needs anything expensive at the vet (and I hope he never does) I’ll have the money on hand to take care of him.

PDXgirl
PDXgirl
12 years ago

re: Real Estate Agents Not all states are the same and I’m not a lawyer so this isn’t legal advice, but I do come from a large family of real estate pros (investors, agents, mortgage brokers etc) and I know a little bit about the buyer v seller agent distinction in Oregon In Oregon a Real Estate Agent cannot withold important information from the buyer that the agent has or should have knowledge of (if the roof is about to go, if there’s an in ground oil tank, if its in a flood plain, etc), however a seller’s agent has… Read more »

Monica
Monica
12 years ago

I think the best thing my husband and I have done money wise is to avoid all these pyramid schemes that keep bombarding us. We’re so sick of it and there always seems to be some new non-FDA regulated supplement out there that will cure everything but costs $100 per bottle. Ugh! We’ve vowed to never join a pyramid scheme or anything that even remotely resembles one.

Shirley
Shirley
12 years ago

Bev makes a really good point. We faced major bills when my husband was in a car accident a few years ago with an 80/20 policy. I went over the hospital bill for his 3-week stay with a fine-tooth comb and found many duplicate charges and questionable ones as well, which saved a lot in itself. However, other claims for visits and care were rejected as not covered, etc. I contacted an insurance company rep, told him our story and asked for his help. Usually the claim had been submitted incorrectly or without all the required info. He told me… Read more »

Obbop
Obbop
12 years ago

Extended warranties are only as good as the firm standing behind it. I bought the extended warranty from the manufacturer, General Motors Corporation (GMC), of my Chevrolet (Chevy) Silverado pick-up. The horrors experienced during the 3 year/36,000 mile factory warranty period is another story. With water pouring through the dash inside the cab, shorting out the heater blower motor and creating a mini-lake upon the passenger-side cabin floor, I took the truck to the dealer. I was not surprised to hear the refrain I had grown so familiar with, the standard explanation for the various dealers I had visited in… Read more »

D.
D.
12 years ago

I agree that AppleCare is actually a great deal for what you get, should you ever need it. There’s a reason it costs so much. To the GMC truck guy and anybody else, don’t feel bad about not buying American. I worked for GM not long ago and their cars suck for a reason. Incompetent management – not foreign competition – is what’s ruining the American auto industry. Toyota employs almost as many Americans at this point. Regarding extended warranties on cars, they’re never worth it no matter what make you buy. Car dealers pay their mechanics miserable wages, so… Read more »

Shirley
Shirley
12 years ago

Obbop–I am wondering where your state stands on lemon laws. I know they are all different and you mention the futility of the legal system. Your tale brought back memories … I had an Isuzu Trooper that leaked profusely on the passengers side, very much like what you mention. The dealer couldn’t replicate my problem either. After several experiences where water poured onto the floor and no fixes from them, I cited the lemon law. Voila … I had a new windshield (and new sealant, etc.–where most likely the problem was) and no more problems. Reparing that windshield was a… Read more »

Obbop
Obbop
12 years ago

Nebraska is an extremely consumer-unfriendly state. One reason why every spring a horde of out-of-state “contractors” descend upon the state to bilk consumers. Nebraska’s “lemon law” is so restrictive that very few people can utilize it. I explored every recourse and due to a lack of wealth for hiring a very costly attorney and the the notoriously business-friendly anti-consumer small claims court system… along with a cost-benefit analysis of the expense of gaining satisfaction versus the monetary and time costs of forcing repairs to be done, the conclusion was I was stuck. Even if I could have forced the dealers… Read more »

Islander
Islander
12 years ago

The legal differences from state to state is huge.

Massachusetts has excellent consumer protection for car buyers and a good lemon law, but real estate laws are extremely unfriendly to consumers. Other than lead paint and septic problems, the seller is not required to reveal anything at all about the house. Even the lead paint law has an out in that the seller can simply check “don’t know.” Don’t test, don’t tell. The real estate lobby in this state must be very, very powerful.

kitty
kitty
12 years ago

“Do average people really buy homes without contracting a buyer’s agent? That seems pretty stupid to me, since it usually only costs you if you complete the transaction, and even then its usually not that much.” Why do you need a buyer agent? You can find out what the properties actually sold for recently – this is free information. You can also walk into any real estate, say you are interested in recent sales in the area, but don’t plan to buy/sell this moment, and they’ll tell you. I did it twice – the first time I didn’t trust the… Read more »

Foobarista
Foobarista
12 years ago

In truth, real-estate agents represent the _deal_, not the seller. They don’t get paid until a deal closes. Their compensation model is such that they want to close deals quickly, so they can minimize their time spent on a deal and can move on to the next deal. This is true for both “buyer agents” (ie, those recruited by the buyer but paid out of the proceeds of the sale) as well as listing agents. Now this isn’t to say that many real-estate agents don’t work hard for the people they represent – after all, referrals and such are crucial… Read more »

Mikael
Mikael
12 years ago

Great list. I do think however that to the point: “Seek recommendations from people you trust” needs added that you should get them from people that knows what they are talking about. I see far to many people giving advice about things they know nothing about. And taking advice from such a person can easily cost you fortunes.

Identity Theft Secrets
Identity Theft Secrets
12 years ago

Never give out your SSN if you can get around it – or your child’s. For example public schools require them, but then give your child a school id number. The SSN is useless to them as your child is not using it for it’s true purpose. Also explain to places like doctors offices and such that you do not provide it until you are actually in the office (I had a dr yesterday REFUSE me an appointment without my SSN to verify my insurance). I said, fine, there are other doctors out there. As for online, think of the… Read more »

mythago
mythago
12 years ago

As a follow-up to Mikael’s excellent point, ask in your extended network. You may not be friends with a doctor, but one of your friends might have an M.D. cousin; you may not know any lawyers but a friend knows one who owes him a favor. You save nothing by asking non-experts but you may be able to get some free or inexpensive help by putting the word out.

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